Sydney will see the biggest rises in residential property prices of any prime global city this year, says Knight Frank, while Hong Kong, Singapore and Paris are all likely to see price drops.
The agency’s compared its forecasts for ten of the world’s most affluent cities (up from eight last year), to put Sydney up top with an anticipated 10% increase in house prices over the coming 12 months. Hong Kong’s 5% drop sits at the other end of the chart.
Only London, Paris, Geneva and Singapore are forecast to see stronger price growth (or a slower rate of decline) in 2016 than in 2015, although London’s 1% increase on last year is “marginal” thanks to higher transaction costs, the Mayoral election, and “ongoing affordability concerns”.
Overall, prime prices across all ten cities are, on average, expected to have increased by approximately 3% in 2015 but average annual growth is forecast to slip to 1.7% in 2016.
For most cities, low income growth and a slowing domestic economy are considered the lowest risks to luxury property markets. There is a chance that the recent 0.25% US rate rise and resulting strong dollar could spark a new wave of safe haven capital flows from emerging markets to first tier luxury residential markets, notes Knight Frank. But, with new supply in several markets expanding (Hong Kong, London, Miami, New York) the firm thinks it’s “unlikely we will see prices respond in the same way they did post-Lehman.”
Knight Frank’s Global Prime Cities Forecasts 2016:
- London: A marginal upturn is forecast here, from 1% in 2015 to 2% in 2016. A rise in transaction costs, political risk around the Mayoral election and on-going affordability concerns explain the muted forecast.
- Paris:The recent terrorist attack will undoubtedly affect buyer sentiment in Paris. The rate of decline in prices is forecast to lessen slightly from -5% in 2015 to -3% in 2016.
- Monaco: Its status as a private and secure retreat continues to appeal to the world’s wealthy. Prices here are expected to rise by 5% in 2016 due to constraints on supply and steady demand.
- Geneva: Switzerland as a whole has been characterised by uncertainty in recent years. However, we expect enquiries to strengthen in 2016. The high stock levels will keep prices from rising over the next 12 – 18 months, hence our forecast of 0% growth in 2016, but more stable trading conditions seem likely.
- Hong Kong:Forecast to be the weakest-performing luxury residential market in 2016. A number of new developments are due to come to the market; this new supply coupled with the strengthening HK Dollar will see prime prices soften.
- Singapore: We forecast the market will see marginal price growth from -3.5% in 2015 to -3.3% in 2016. The drop in price of luxury properties has presented pockets of investment opportunities.
- New York:In 2015, the demand for New York’s luxury homes cooled from the frenetic pace observed in 2013 and 2014 due to the strength of the US dollar and weaker economic conditions worldwide. We predict there will be growth in New York in 2016 of 5% similar to that of 2015.
- Miami: Predicted to see growth decline from 4% in 2015 to 2% in 2016. The performance of the dollar against key South American currencies and the euro will influence demand/capital flows.
Prime Global Cities Risk Monitor
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Kate Everett-Allen, Partner, Residential Research at Knight Frank: “Of the ten cities analysed in our forecast, Sydney is expected to come out on top. However, the pace of price growth is expected to slow from 15% year-on-year in 2015 to 10% in 2016. Australia’s economic slowdown, weaker stock market performance in recent months and the introduction of foreign investment fees explain the lower rate of growth in 2016. Only London, Paris, Geneva and Singapore are forecast to see stronger price growth – or a slower rate of decline in 2016 than 2015.
“The Fed’s recent rate rise and the impact of geopolitical tension on the world’s top cities are currently considered the highest risk to the luxury city markets. In previous years, the Eurozone and its potential break-up was the top threat to economic and property market stability but jitters over its demise have subsided as the ECB has announced an extension to its QE programme. Instead, emerging markets and the risk of potential deflationary cycles represent the major headwinds for the global economy.”